Special Report: Summit of the Americas

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Early round: A group of police were down on this protester in Ottawa last week

In December 1994, the presidents and prime ministers of the Western Hemisphere's 34 democracies clasped hands and raised their arms together to mark the finale of the first Summit of the Americas in a quarter-century. As they sweltered in business suits under the Miami sunshine outside the doors of the lush Vizcaya estate, the group members posing for a final photo op looked sublimely confident that they could revive the old dream of hemispheric unity.

In less than two weeks, when the latest contingent of 34 American leaders meets for the third quadrennial summit, in Quebec City, the confident smiles will be back in place. The two-day gathering will produce a joint political declaration that bolsters the democratic solidarity of the hemisphere and an 18-point collective "action plan" that covers initiatives ranging from toughening the war against drugs and providing rural areas with access to computer technologies to the creation of a pan-American network of weather forecasters to assist in the management of natural disasters. And the meeting will undoubtedly announce significant progress toward the Holy Grail of the summit process: the creation of a giant Free Trade Area of the Americas by 2005, encompassing 800 million people and economies worth a collective $11 trillion.

But a lot of other things will be very different from Miami, starting with the less than sunny atmosphere. The latest summit meeting place, a French-speaking city whose picturesque 18th-century old town was denominated as a world heritage landmark by the United Nations Education, Scientific and Cultural Organization, will be fenced off and guarded by phalanxes of police in riot gear. Tens of thousands of protesters are expected to descend upon Quebec City to vent their spleen at capitalism, globalization and the evils of free trade and to demonstrate their conviction that the FTAA will make things worse instead of better. A minority have vowed to shut down the meeting, in a replay of the chaos that beset the 1999 gathering of the World Trade Organization in Seattle — a threat apparently serious enough to persuade the Canadian summit organizers to turn the meeting site into a 10-sq-km redoubt.

The same sense of imminent threat, in fact, overhangs the economies that the summiteers are determined to bring into trade harmony. The main reasons are the abrupt slowdown of the huge U.S. economy and the stock-market swoon that has destroyed more than $3 trillion in paper wealth. The full effects of the slowdown have not spread to Canada and Mexico, the U.S. partners in the North American Free Trade Agreement, but they are still evident. In South America, Argentina has been engulfed by a paralyzing financial crisis that threatens the cohesion and possibly the fate of the Southern Cone trading bloc known as Mercosur (which also includes Brazil, Paraguay and Uruguay).

Long-standing tensions and rivalries between NAFTA and Mercosur have blossomed into a behind-the-scenes tug-of-war over the summit agenda. There are major uncertainties about how the meeting chemistry will be affected by the interaction among newcomers like U.S. president George W. Bush, Mexican president Vicente Fox Quesada and the mercurial Venezuelan president Hugo Chávez Frías — alongside such veterans as the durable Jean Chrétien of Canada and Brazilian President Fernando Henrique Cardoso.

Above all, there is the daunting challenge of the hemisphere's diversity, which brings together at the summit leaders from some of the world's poorest and smallest nations, as well as some of the most populous and richest, including the global superpower, in a search for common political, social and economic ground. They represent a potential clash of every conceivable kind of interest (except one, since nondemocratic Cuba is excluded), made more acute by the economic uncertainty. And as a carefully stage-managed event designed to cement pan-American solidarity, the Quebec City summit, like its predecessors in Miami and in Santiago in 1998, inevitably raises questions about the hemisphere's ability to rise above national interests to make the Miami dream a reality.

This time the skepticism is deeper than ever. "The climate of optimism has changed," says Juan Gabriel Valdés, Chile's ambassador to the U.N. and a former leader of his country's free-trade negotiating team. "We have to accept the fact that the work we have done over the past several years has not been supported politically. If we don't address that, we will fail."

The atmospherics as the summit approached seemed to support that view: the hemisphere resembled a checkerboard of multiplying trade quarrels. Just two weeks ago, despite their intimate NAFTA partnership, Canada and the U.S. moved to the verge of a multibillion-dollar trade war over softwood lumber; it came not long after a bruising spat between Canada and Brazil that involved subsidies to airline sales and, briefly, a shutdown in the beef trade. Brazil was in a row with the U.S. over the pricing of generic aids drugs that added another thorn to a perennially prickly relationship.

Behind it all is a general frustration that the free-trade movement seems to be grinding against a wall of parochial interests epitomized by the growing distance between the two major economic associations, NAFTA and Mercosur. Much of the frustration is directed against the U.S., which has managed to conclude a recent trade agreement with China but has not formalized a single free-trade agreement in its own hemisphere since ratifying NAFTA in 1994. The stumbling blocks have included politically potent U.S. labor and agricultural lobbies that believe unrestrained tariff cutting will undermine the hard-fought gains in living standards won by their members. Try to get U.S. trade negotiators to discuss eliminating sugar subsidies or lowering steel tariffs, and "they won't address the question face to face," complains Antonio Simões, the head of Brazil's trade negotiating team.

The response from proponents of the summit process — including the Bush administration — is that it's easy to lose sight of how much has been achieved since Miami. "We have a tendency not to realize how full the glass is," says Luis Lauredo, the U.S. ambassador to the Organization of American States (OAS) and Washington's summit coordinator. "We've progressed more in the past five years than the European Community did in 30 years after the war. Let's give ourselves some credit." It's also worth noting that, as in Miami and Santiago, none of the leaders in Quebec City will be wearing military uniforms. Adds Lauredo: "These are summits of civil society, not of dictators." Indeed, in countries like Mexico, Peru and Chile, democracies have been considerably strengthened since 1994. Financial crises that overwhelmed Mexico in 1994 and Brazil in 1999 have been largely overcome. Regional trade and investment have expanded. Moreover, "this summit is about much more than trade," says Canadian foreign minister John Manley, pointing to such areas of cooperation as transport, education and the environment.

Even the terms of the proposed FTAA agreement indicate huge steps forward in the hemispheric agenda. A draft of the initial text was approved by negotiators in nine distinct trade sectors last December: a forbidding, 1,200-page document in which virtually every word is surrounded by brackets that indicate a lack of full agreement on the substance. "About the only things that aren't bracketed are the chapter titles," says a negotiator. The draft includes proposed tariff reductions on at least 7,000 products, from orange juice to rolled steel. As a map of negotiations still to come, it promises to address such cutting-edge issues as electronic commerce, intellectual-property rights and telecommunications, along with provisions to ease cross-border red tape for businesses even as negotiations continue. There promises to be strong emphasis on assistance for smaller hemispheric economies, to help them cope with the impact of integration. Grappling with such New Economy challenges has forced every country to reexamine relations with its own domestic constituencies. "Global market forces have put enormous pressures on Latin American countries to improve the way they govern," says OAS general secretary Cesar Gavíria. "Even six years ago, it wasn't clear how critical the state was to resolving issues like poverty and the wealth gap."

For all that, virtually everyone agrees that the hardest work still lies ahead on a bewildering array of issues beyond the ken of most laypeople. And before the deals are reached — with four years to go before the FTAA deadline — uncertainty reigns. Hence the focus on disagreements, many of them vague and obscure, between the main regional trading blocs: NAFTA (total gross domestic product: $8.8 trillion) and Mercosur (total GDP: $1 trillion). The main anxiety is all too clear: fear of economic domination. In a hemispheric free-trade zone that includes the U.S., Canada and Mexico, predicts Josmar Verilla, vice president of the Brazilian Paper Producers Association, "we'll wind up in the meat grinder."

Brazil already dominates its own Mercosur trading bloc, but it is smaller, weaker and much less sweeping in its free-trade arrangements than NAFTA. Accommodating to proposed FTAA rules that are similar to NAFTA's — the draft text mirrors the NAFTA agreement — is therefore seen as threatening. "Rightly or wrongly, the perception that much is expected from our side while little is offered in exchange is indeed widespread," Brazilian foreign minister Celso Lafer declared in Washington last month.

Moreover, Mercosur at the moment is even more profoundly concerned than usual with its own weakness. Argentina's financial crisis, which has sopped up some $40 billion in emergency loans from the International Monetary Fund, has put the country virtually into economic receivership. In Buenos Aires last month, the government of President Fernando de la Rua introduced an emergency economic package of tax reforms and business incentives that it hopes will pull the nation back onto its feet. De la Rua also appointed Domingo Cavallo, a renowned free-marketeer, as his latest Finance Minister, with sweeping powers to dictate economic changes without legislative approval. One of Cavallo's proposed rescue measures would have slashed to zero the 14 percent Mercosur tariff that Argentina currently charges on capital goods from outside the trading bloc. Brazilian officials, at first sympathetic, erupted after reading the fine print, which included tariffs on imported cell phones, computer printers and high-technology items, all among Brazil's most lucrative exports to its neighbor. Argentina subsequently withdrew the idea.

The big question is whether Mercosur can survive more fraternal quarrels like that one. Chile is just one of several associate Mercosur members that are tilting toward the NAFTA model. Fears of Mercosur's demise are probably exaggerated, but Alberto Pfeifer, executive director of the Latin American Business Council, which is based in São Paulo, agrees that the bloc is at a crossroads. "If it stays as it is now, an incomplete customs union, it will, I would not say perish, but it will be attacked by the ongoing FTAA negotiations."

Mercosur represents more than a trading zone to South America's largest nation. It is a sphere of influence and a counterbalance to North American geopolitical clout. With a combined trade volume of $18 billion a year, Mercosur has become the world's third largest market — a distant third — after the European Union and NAFTA. It is also a potent symbol of Brazil's ambition to be a leader of South American unity. Last year the Cardoso government broke new ground at a South American summit, where it argued for the accelerated integration of the continent. "Mercosur is our destiny, while the FTAA is an option," Cardoso likes to say. Part of that balance-of-power destiny includes closer ties with Europe, the target of more than 25 percent of Brazil's exports and the source of much foreign investment.

Brazil's concerns about domination by the NAFTA superpower sound familiar in Canada and Mexico, which went through similar anxieties before creating their own free-trade ties with the U.S. Canadian trade minister Pierre Pettigrew, for one, says Canada's experience shows that Brazil's fears are unfounded. When NAFTA was signed, he recalls, "furniture production in Tennessee was 15 times larger than what our traditional furniture makers could build, but our furniture makers have done very well in the U.S. market because they have found niches." In the end, he argues, "Brazil will have to open its closed economy in order to prosper."

Maybe. But when? Much of the tension and unease of the north-south divisions in the hemisphere have been funneled into convoluted maneuvers over the timing of the FTAA launch. (The deadline date is itself the result of a compromise: Brazil originally wanted it set for 2010.) The latest efforts by the NAFTA forces involved suggestions to push forward the 2005 deadline for the FTAA's launching to 2003. The Brazilians have cold-shouldered the idea. Foreign Minister Lafer says a two-year speed-up would swamp domestic industries with a flood of low-priced goods before his country is ready. "We're joining the FTAA only if it's convenient for us," Lafer told TIME last week. Brazil gained support in that position from Venezuelan president Chávez, a strident critic of the U.S., who flew down to Brasília last month to say that moving the date forward "would be for us a process of disintegration." Then Chávez asked for Venezuela to become an associate member of Mercosur.

"The possibility of 2005 terrifies us," admits Venezuelan foreign minister Luis Alfonso Davila, currently president of the Andean Community of Nations. "Our economies are absolutely not structured to compete in the big leagues." The region's smaller economies in Central America and the Caribbean also fear change, since a huge part of their budget revenue currently comes from tariffs. Even for such a staunch FTAA supporter as Mexico, there is still so much to be gained from further deepening NAFTA ties that opinion is divided. "It's hard to find a real driving force," says Mexican foreign minister Jorge Castañeda. The final word on a timetable emerged from a meeting of the hemisphere's trade ministers late last week in Buenos Aires. The trade talks are slated to end on Jan. 1, 2005, with the agreement in force by Dec. 31, 2005. In a possible prelude to Quebec, an angry, stone-throwing minority of young people in a crowd of 2,000 anti-FTAA protesters had to be dispersed by tear gas outside the city's Sheraton Hotel on the first night of the ministerial get-together. If anyone is expected to invigorate the trade talks, it is George Bush, and his White House relishes the prospect of demonstrating hemispheric leadership. "Quebec City will put additional focus on the President's trade agenda," says Robert Zoellick, the top U.S. trade negotiator. "He's an honest-to-God free-trader." Bush has used the same phrase in meetings he has held in Washington with six of the hemisphere's leaders, including Cardoso; Bush officials claim that those sessions attest to an "unprecedented level of engagement" with the hemisphere for a new administration.

Bush's level of engagement will be crucial, but will it be enough to overcome the opposition to free trade that exists even among his U.S. constituents? Jack Rooney, head of the American Sugar Alliance, a lobbying group for producers, explains that his members are all for free trade, but they worry that, without tough provisions on labor rights, the FTAA will turn the U.S. into a "dump market" for low-priced sugar. That kind of rhetoric is one reason no comprehensive trade bill has passed the U.S. Congress since the NAFTA accord. After that, the Clinton administration repeatedly failed to win fast-track authority — the ability to pass trade bills without worrying about legislative amendments — from a U.S. Congress skeptical of the White House commitment to protecting American jobs. Labor and environmental standards are "directly relevant to the structure of international competition," argues Sander Levin, the ranking Democrat on the U.S. House of Representatives trade subcommittee. "There are 130 free-trade agreements around the world, and the U.S. is part of just two," ripostes Zoellick, who adds that pursuing such regional trade agreements as the FTAA could kick-start stalled negotiations for a new global round of tariff reductions. The White House concedes that Bush will not be bringing the crown jewel of fast track to Quebec, but he will be "coming with something," promises a senior official.

Similar contortions have already been involved in arriving at the terms of the summit political declaration and the "action plan," which has been massaged by officials from around the hemisphere for months. The heart of the political declaration will be a clause that makes future participation in the busy hemisphere round of ministerial conferences and trade negotiations dependent on staying part of the "democratic family" of nations. The plan will call for a permanent council of OAS member countries to monitor challenges to representative democracy around the continent, as well as concrete measures to improve the region's creaking infrastructure, such as upgrading transborder highways and developing an Internet link for doctors. These will cost money: Summit officials put the total at more than $100 million, which will have to be found from such institutions as the Inter-American Development Bank. Latin Americans have balked at linking labor rights and environmental standards to the hemisphere free-trade drive, even in an action plan.

In the end, the most important result of the Quebec summit will not be embedded in any declaration. The hemisphere's leaders will spend at least eight of their 10 scheduled hours for talks closeted away from the press. Their freewheeling discussions will cover everything on the agenda and more, but they will also serve to forge personal ties and air strongly held views without fear of public reaction. In a word, they will bond. "The main thing we want to achieve is a strong reaffirmation of the hemisphere's collective will," says Marc Lortie, Canada's summit coordinator. More than anything else, the future of the hemisphere will depend on how — and if — that happens.

— With reporting by Sol Biderman/São Paolo, Susan Catto and Leigh Anne Williams/Toronto, Lucien O. Chauvin/Lima, Andrew Downie/Rio de Janeiro, Cristóbal Edwards and Javiera Moraga/Santiago, Uki Goñi and Elizabeth Love/Buenos Aires, Barry Hillenbrand/Washington, Christina Hoag/Caracas, Peter Katel/Mexico City and Ruth Morris/Bogotá